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I'm pretty sure this would work the same in PS as well.
This is how I created this page...
I chose this background because it was busy so I wouldn't need to use any embellishements. Also, it matched the photo nicely.
It's from a paper pack called Beautiful Soul by Rene Bross
Next, I added and resized my photo
Then I opened a new Adjustment Layer. To do so, click on the black and white circle on the Layers Palette. Choose either Hue/Saturation, Brightness/Contrast or Levels. It really doesn't matter. When the dialog box opens, just click OK without making any changes.
Make sure your Adjustment Layer is below the photo you want to blend. Then you'll need to group the photo with that layer. To do so, make sure the photo layer is active and click Control + G
Reset the Foreground and Background colors to black and white
Click on the white square on the right in the adjustment layer to activate it (This is a VERY important step) If your photo layer is active, all your going to do is paint over it.
Now open your Brush Tool and choose a simple round brush under the Default Brushes. Change the size of the brush as nesessary.
Make sure your Foreground Color is black.
Now, go over the edges of your photo with the brush. The black will work almost like the eraser tool. Adjust the Opacity of the brush to get the desired effect. 100% will erase it completely...the lower the opacity the less you will erase. If you want to bring any of the photo back, toggle your colors using the X key and make white your foreground color. White will have the opposite effect as black.
Look on my adjustment layer and you'll notice that I used full opacity to get rid of the edges of the photo, but lessened it to just blend the photo with the background. The gray is shown where the opacity was lowered and the black is where it was at 100%
Adjustment Layers are great becuase you can use them to make changes to layers without actually changing the layer itself. If you don't like it, delete the adjustment layer and your original layer is still intact. You can use a Hue/Saturation adjustment layer to change the colors of a background or element that you like, but maybe the color isn't right for your page.
For instance, here is a background I created.
Maybe I'd like to use it for a page I'm making for my son, but pink wouldn't work to well for a boy page. So, I opened a Hue/Saturation level to change the color
The adjustment layer only has to be grouped with a layer if you only want to make changes to that particular layer. If you want to adjust an entire layout, then open an adjustment layer and make the changes in the dialog box the first time it opens. It will affect all layers under it. If you need to reopen the adjustment layer dialog box, double click on the square on the left side of the layer.